Insurance contract performance


Published on

Published in: Healthcare
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Insurance contract performance

  1. 1. Insurance Contract Performance: Ethics in Defending Third-Party Claims Michael Kasdin Partner Dentons Chicago +1 312 876 3444 CLE Seminar for In-House Counsel June 5, 2014 Chicago, Illinois © 2014 Dentons. All rights reserved.
  2. 2. Third-Party Insurance Creates Many Different (often conflicting) Relationships 2
  3. 3. Model Rules of Professional Conduct • Rule 1.6 – Confidentiality of Information • Rule 1.7 – Conflict of Interest • Rule 1.8(f) – Conflict of Interest • Rule 5.4(c) – Professional Independence 3
  4. 4. Rule 1.6 (a) A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted by paragraph (b). 4
  5. 5. Rule 1.7 (a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if: (1) the representation of one client will be directly adverse to another client; or (2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer. 5
  6. 6. Rule 1.7 (cont.) (b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if: (1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client; (2) the representation is not prohibited by law; (3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and (4) each affected client gives informed consent, confirmed in writing. 6
  7. 7. Rule 1.8(f) (f) A lawyer shall not accept compensation for representing a client from one other than the client unless: (1) the client gives informed consent; (2) there is no interference with the lawyer's independence of professional judgment or with the client-lawyer relationship; and (3) information relating to representation of a client is protected as required by Rule 1.6. 7
  8. 8. Rule 5.4(c) (c) A lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such legal services. 8
  9. 9. The Relationship Between The Insurer and The Insured in Litigation 9
  10. 10. Read the Policy • Is there a duty to defend? • Is there a right to defend? • Is there a right to control the defense? • Is there a right to associate with the defense? • Is there a duty to cooperate? • Is there a right to approve settlement? • Is it an indemnity policy? • Is it a liability policy? • What are the expectations of the insured? 10
  11. 11. 11 Competing Duties Can Arise
  12. 12. Scenario 1 12 Plaintiff Defense Counsel Defendant
  13. 13. Relationships are simple • There are no competing duties of defense counsel • Defense counsel owes loyalty to client, and there is no question that communications are privileged (unless they fall into an exception to Rule 1.6) 13
  14. 14. Scenario 2 14 Plaintiff Insurer Defendant Insured Defense Counsel
  15. 15. This is where problems begin • Now, defense counsel is being paid by a third party – directly implicating Rules 1.8(f) and 5.4 • In this situation, we presume a covered claim, and there is no dispute with respect to coverage • Should be straightforward, right? 15
  16. 16. Not so Fast… • Who controls settlement? • Read the policy • Who controls strategy? • Read the policy • Is the insurer entitled to information? • Does disclosure to insurer waive privilege? • Does the contractual duty to cooperate conflict with an insured’s right to attorney-client privilege? 16
  17. 17. 17 What Do The Cases Say? And What Should We Do?
  18. 18. Privilege and the insurer • Joint or common interest doctrine generally permits disclosure without fear of waiver • See Continental Cas. Co. v. St. Paul Surp. Lines Ins. Co., __ F.R.D. __, No. CIV S-07-1744, 2010 WL 1266926, *5-6 (March 30, 2010, E.D. Cal.) (applying California Law) • Asbury v. Beerbower, 589 S.W.2d 216 (KY. 1979) • North River Ins. v. Philadelphia Reins., 797 F. Supp. 363, 366 (D.N.J. 1992) 18
  19. 19. In some jurisdictions, an insured has no right to claim privilege as against his insurer • Nationwide Mut. Fire Ins. Co v. Bourlon, 172 N.C. App. 595, 605 (2005) (No right to privilege except for matters unrelated to defense or for matters adverse to insurer) • Northwood Nursing v. Continental Ins. Co., 161 F.R.D. 293, 297 (E.D. Pa. 1995) (Insured has no reasonable expectation of privilege as against his insurer who is defending the action) 19
  20. 20. Tripartite relationship creates a joint interest • Insurer and insured’s interests are purely aligned. They both seek to minimize or eliminate liability. • Typically, both the insured and the insurer are considered clients of defense counsel and privilege is shared between them. See San Diego Navy Fed. Credit Un. v. Cumis Ins. Society, 162 Cal. App. 3d 358, 364 (4th Dist. 1984) 20
  21. 21. Common interest must be legal and not merely commercial • See Square D Co. v. E.I. Elec., Inc., 264 F.R.D. 385, 391 (N.D. Ill. 2009) 21
  22. 22. The interest must also be identical and not merely similar • See Duplan Corp. v. Deering Miliken, Inc., 397 F. Supp. 1146, 1172 (D.S.C. 1974) 22
  23. 23. Some states have even gone so far as to recognize an insurer/insured privilege for just this reason • Illinois – People v. Ryan, 30 Ill. 2d 456 (1964) • Indiana – Richey v. Chappell, 594 N.E.2d 443, 446 (Ind. 1992) • Missouri – State v. Barker, 540 S.W.2d 50 (Mo. 1976) • See also Linde Thomson v. Resolution Trust Corp., 5 F.3d 1508, 1515 (D.C. Cir. 1993) (some insurer-insured communications are protected by the attorney-client privilege) 23
  24. 24. Scenario 3 24 Plaintiff Insurer Defendant Insured Defense Counsel Coverage Counsel
  25. 25. Insurer has reserved rights and may dispute coverage • The dynamics have now changed • The insurer and insured are no longer aligned • Insurer may desire a litigation result that creates liability for the insured while eliminating coverage (e.g. the insured undertook some intentional act outside of coverage as opposed to an accidental act) • Insured seeks to either avoid liability or have his actions determined to fall within coverage 25
  26. 26. Major Issues • When conflicts arise insured is entitled to independent counsel – paid for by the insurer • Cumis, 162 Cal. App. 3d 358 (4th Dist. 1985) • Maryland Cas. Co. v. Peppers, 64 Ill. 2d 187 (1976) • At this point, the insurer loses its contractual right to control the defense of its insured 26
  27. 27. A reservation of rights does not necessarily create a complete conflict requiring Cumis counsel • See Blanchard v. State Farm, 2 Cal. App. 4th 345 (2d Dist. 1991) (There is no right to independent counsel where coverage issues cannot be influenced by counsel) • L&S Roofing Supply Co., Inc. v. St. Paul Fire & Marine Ins. Co., 521 So. 2d 1298 (Ala. 1987) • Tank v. State Farm Fire & Cas. Co., 105 Wash. 2d 381, 387-88 (1986) (Defense under a reservation of rights enhances insurer’s duty to its insured. Breach of this liability may result in liability to insurer or to retained defense counsel.) 27
  28. 28. Rule 5.4(c) governs defense counsel When defense counsel defends a client, while being paid by an insurer that is asserting a reservation of rights, counsel must understand that he or she represents only the insured. Van Dyke v. White, 55 Wash. 2d 601, 613 (1960). 28
  29. 29. Rule 1.7 also governs defense counsel • Defense counsel owes a duty of disclosure to the insured in three aspects: 1) Potential conflicts must be fully disclosed and resolved in favor of the insured. 2) All information related to the insured’s defense must be communicated to the insured. 3) All offers of settlement must be offered to the insured as they are presented. The insurer may not exercise both its right to approve settlement and its reservation of rights. • See Tank, 105 Wash. 2d at 388-89. 29
  30. 30. Scenario 4 30 Plaintiff Insurer Defendant Insured Defense Counsel Reinsurance Coverage Counsel Coverage Counsel Reinsurers Plaintiff Insurer Defendant Insured Defense Counsel Reinsurance Coverage Counsel
  31. 31. Same Analysis • Are the parties’ interests aligned? • Is the insurer contesting coverage? • Is the reinsurer contesting coverage? • Does the reinsurer have any right to associate with the defense of the insured? • If the reinsurer has challenged coverage, does this affect the relationship between the insured and the insurer? 31
  32. 32. Important considerations • What does the treaty/facultative certificate provide with respect to the rights of the reinsurer? • Is there a following fortunes clause? • Following settlements? • Duty of utmost good-faith? • Right to associate? • Salvage rights? 32
  33. 33. Scenario 5 33 Excess Insurer Plaintiff Insurer Defendant Insured Defense Counsel Coverage Counsel Excess Coverage Counsel
  34. 34. This situation is different than with a reinsurer because the excess carrier will be in privity with the insured • Are interests aligned? • Has the primary insurer accepted coverage? • Does the excess policy incorporate the underlying cover? • Does the excess carrier have rights with respect to the conduct of the defense of the insured? 34
  35. 35. Thank You! We are very interested in your feedback - please take a moment to leave a note about this class and presenter(s) on the back side of your evaluation form. © 2014 Dentons. Dentons is an international legal practice providing client services worldwide through its member firms and affiliates. This publication is not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content. Please see for Legal Notices. Michael Kasdin Partner Dentons +1 312 876 3444